The politicians who have to make the decisions have at one end of their table the economists - experts to help them get it right. The experts disagree - and not always nicely.

At the other end are the voters, who are not experts, but whose opinions matter more to the politicians than the opinions of a few economists. But it gets messy when the economists also influence public opinion. That messy is going to continue until the mess is sorted.

Do whatever it takes - yes indeed, but what does it take? It all reminds me of something this voter does understand, best exemplified by a simple story:

Our old 20th century television went on the blink. The picture would break up when the set warmed up. My elder son JK was right when he said hit it. He would demonstrate, and a sharp smack would restore the picture - most times. Sometimes it needed several hits. He tried hitting different places, reckoning some were more effective than others, but maybe that was just his brain searching for a non-existent pattern. He never found a place to hit it that was guaranteed to make it work.

My younger son FH was intensely irritated by all this. He said we should turn the TV off and let it cool down, then it would be OK again. He was always right - his solution always worked. So they were both right - even when each said the other was wrong. The assertion by FH that JK's repeated hitting it could do no real good was obviously true - especially when JK felt he hadn't hit it hard enough and really walloped it. JK's assertion that FH's solution wasn't a solution because we would all miss the program we were there to watch was also true. Their whole argument was futile, trivial and obvious.

Eventually, tiring of the secondary activity of analysing their arguments with them, I fixed the TV - by finding the dry joint that was causing the problem and re-soldering it. It took me a few shots at various suspect joints before I found the right one, but I got there. Naturally, both sons resented the evenings without the set whilst I had the cover off poking around with the solder sucker, soldering iron and the multicore solder.

The trick was finding the particular place to touch with a hot iron, rather than just giving the set a macro hit on the outside.

Economics is not a mature exact science; why not? We know the dry joint in our economy is the speculative market, run by people who trade in obscure concepts, but never make anything except profits balanced by somebody else's losses. It is that market that generates bubbles. It needs fixing.

Perhaps the economists can look at that and suggest how the politicians might fix the greed and indolence driven bubble machine. Then the politicians will have a plan rather than recurrent stand-offs, I will have something to vote for, and when we turn it on again the economy will work properly.

The only way to put the economy back on a growth path is to have a giant liquidation of the collateral for bad debt. Trillions worth of mortgaged houses must be auctioned off, and many of the banks that lent the money must go under. Any Government bailouts must be reserved to the little guy, not to the banks.

And the obligation of countercyclical spending now must fall on those countries that piled on the savings during the last up-cycle. Not the countries who borrowed their prosperity, and now need retrenchment if they are to preserve any sort of generational equality. More printing and more borrowing for the indebted developed countries is tantamount to ceding the future to the mercantilist upstarts, and that's not an acceptable trade for what would arguably not solve the current crisis very well either.

There won't be a crash of the US economy in the near future even though a recession or some asset-bubble bust is probable. The most likely scenario is not an armageddon but a slow-and-steady impoverishment of the US economy unless the Americans conspire an armageddon for themselves. Keynes predicts what will happen to an economy like the USA at page 217 of General Theory. He also presents an alternative scenario in which such an economy won't undergo impoverishment, but that is certainly not plausible with the US for the reason he presents there. Try and read it, anyway. That part is very entertaining to read.

On Monday and Tuesday, 22 August and 23 August there will be a global nonlinear equity crash of historical proportions.

And on these two days one of the greatest hypothesis of the 21st century, 'quantitative saturation macroeconomics' will be validated.

The debt/money/asset macroeconomic system has its own intrinsic very quantitative operating laws that represent ideal fractal time dependent self assembly of asset saturation curves and define the counterbalancing limits of the macroeconomic saturation system. An understanding of saturation macroeconomics as a science with self assembly and self organization laws equal to physics and chemistry and biology can potentially guide global economic policy, monetary policy, and banking money-creation policy, and change rules regarding speculation on leverage assets.

These very simple laws were empirically observed in repetitive time based fractal patterns of varying time dimensions throughout the time based evolution of asset valuation curves and were defined in 2005 in the Main Page of the Economic Fractalist.

x/2.5x/2x/1.5-1.6x . The first three fractal phases are asset saturation growth fractals and the final or fourth fractal is an asset valuation decay fractal. X is a unit of trading time whose dimension can be minutes, hours, days, weeks, months, years, or decades. The 1.5-1.6x fourth fractal can itself be composed of a decaying x/2.5x/2x/1.5-1.6x 4 phase fractal series or a y/2-2.5y/2-2.5y 3 phase decay fractal series. The third fractal is ideally 2x in length but can be extended to 2.5x in length if growth is favored by underlying money supply growth or if the preceding valuation decay is significantly great.

On 11 August 2011 in Alpha's The Economic Fractalist Instablog a final decaying growth sequence was predicted as a 27 July 2011 3/8/6-8/5 day 4 phase fractal with a potential of a 2.5x 8 day third fractal extension.

The 20 August 2011 actual fractal progression is currently 3/8/7/3 of 5 days with a dropping of the Wilshire composite equity valuation near the 9 August 2011 interday low.

The NASDAQ final fractal sequence leading to today's near low begins its final fractal crash journey with its first base fractal including the key reversal day 3 year high on 2 May 2011. The first base fractal of the ensuing pristinely perfect x/2.5x/2x/1.5-1.6x sequence is a 13 day fractal starting 18 April 2011 and ending on 5 May 2011 intraday low to intraday low. The preceding end of one fractal is the beginning of the next fractal; incipient growth begins in final decay. There is an elegant integration process in quantitative saturation macroeconomics where larger initiating growth time unit, for instance, an incipient growth fractal denominated in the unit of a year incorporates a decay period of the last few of the final lower order time units, for instance, one or two terminal decay months of the preceding monthly low to low fractal series may be incorporated lasting into the follow fractal that last for a 100 months.

32 trading days later, after the first 13 day fractal end on 5 May 2011, an averaged NASDAQ low was made on 20 June 2011. The intraday low fell two trading days before but the averaged low of June 20 was equivalent to the averaged low of that day and was decidedly lower than the 20 June preceding day's trading average. Third fractal growth concluded 26 trading days later on 26 July 2011 with lower low gap between the 26 July and 27 July delineating the 4th decay fractal of an expected 26 July 2011 1.5-1.6x :: 20 to 21 trading days. 19 August was day 19 of the expected 20 to 21 day :: 1.5:1.6x fourth fractal.

Interpolated terminal fractal sequences are everywhere:

Starting on 14 July 2011 an interpolated fractal series : 3/8/6/5 days:: x/2.5x/2x/1.6x ending on 5 August followed by and starting on 5 August a 2/5/3 of 5 days :: y/2.5y/2.5y decay fractal.....

Starting on 18 July 8/18 of 20 days x/2.5x .....

Starting on 27 July for the 18 day second fractal of the 8/18 of 20 day fractal series: 3/8/7/3 of 5 days

and finally starting on 18 April the reflexic fractal series proportionally identical to the 20/50/40 days x/2.5x/2x series that prospectively was predicted by Saturation Macroeconomics in the Huffington Post to be the Wilshire's nonminal final high on 11 October 2007, a 13/32/26 day :: x/2.5x/2x reflexic growth fractal with a (decaying) 26th day lower high followed by a delineating gap and a 26 July 2011 19 of 20-21 day 1.5-1.6x 4th fractal which on 20 August 2011 is sitting on the edge of 154 year US Composite Equity second fractal nonlinearity that began in 1858..

I think the reality is keynesianism is the last grasp of idiocy before the rich world decides to mass default. like running up your credit card before declaring bankruptcy. we all walk around acting incredibly concerned, run up a huge tab, then proceed to:

a)leave the gold standard(oh wait, that was the 30's)
b)print piles of money
c)normal old "we ain't paying you back" default

in that essence I can give the idiocy of bampbs credit. at least we'll be able to laugh at our creditors!

the keynesians are often very coy about how high and how long we should run our deficits, though apparently 5+ years and >10% deficits isn't enough. how about we run 18% deficits for a decade? would that be sufficient to make your magical keynesian miracle occur?

"We know perfectly well how to prevent it" is misleading. We may (for the sake of argument) know what economic policies and actions would prevent it. What we absolutely do not know is how to manage the politics to allow any such policies to be implemented.

Knowledge, without the ability to act on it, is of minimal use. At most, it puts you in a position later to point and say "I told you so, you idiots."

And one of the most scary things about long crises is how people will flock to a person who (rightly or wrongly) will say "I know how to fix this!" - whether that person is Nixon and "Peace with honor" or Hitler and hyperinflation.

the keynesians have really gone off the deep end. the fact that people like euphrax act like the rich world hasn't run some of the largest deficits in history for nearly half a decade is beyond maddening to the point where I'm starting to hold a serious grudge. it's like having an argument with a person wholly incapable of being an honest human being.

but let's face reality, people have spent way too much money. and until those obligations are defaulted on one way or another, the mountain of debt will continue to strangle everything. whether that be plain old default, print a bunch of money, or 1930's version of leaving the gold standard.

You know as well as I do, that as soon as the budget gets close to surplus, the fools will spend all the short-lived windfall on long-term commitments for popular programmes and tax-cuts. Feed the boom! Inflate the bubble! So much for counter-cyclical.

Does anybody have any faith in the representative democracy to do the right thing any more? Not even Congress believes they have the will for discipline and compromise. That's why they have to resort to things like "Super Commissions" take tough decisions like budget, base closings, trade deals and so on. If the whole of Congress and representative democracy really worked, why would they so often have to take affairs at least a few steps away from the chaos of the public scrutiny and contributions of all members of both full houses?

@Doug Pascover

A third approach? What do you have in mind?

How about tax rates that automatically ratchet up in the boom and down in the contraction. Don't get me wrong, it's possible to keep it revenue neutral over the long term, but I doubt it would ever get past the faction that will only tolerate taxes ratcheting in one direction.

When the Great Depression was unfolding, nobody called it that. Everyone expected the frothy optimism would resume get the economy roaring again. Only in retrospect could they recognise the disaster for what it was. At almost every turn, policy makers did exactly the wrong thing which steered the economy even deeper into the chasm, tight money, fiscal austerity aimed at keeping budgets balanced, trade barriers, etc. making everything much worse for much longer. Even the Republican, Ben Bernanke stated this; "Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again;" when he was thanking Milton Friedman, an intellectual hero of the modern conservative movement for helping us understand how the policy makers and the central bank contributed to the crisis so we wouldn't repeat the mistake.

I have faith in Mr. Bernanke, but it's a shame that he's up against so many who apparently didn't do the reading and are all to ready to follow that road of folly that their predecessors travelled in the1930s.

So here we go again.

Our fearless correspondent suggests; "strong, well-anchored automatic countercyclical stabilisers—fiscal and monetary—are the best hope for avoiding prolonged economic crises." But didn't our correspondent or one of his colleagues already warn us in 2009 when he coined the term "50 Little Hoovers" sucking all the stimulus up with public cutbacks and layoffs compelled by strict constitutional balanced budget requirements. Now many are calling for this kind of automatic discipline on the federal level. Not much different around the globe, the UK, Ireland, Spain, Greece, Italy, where Recession + Austerity is the latest fashion. So much for automatic stablisers.

"Sorry we can only afford benefits when the economy is booming. With this recession and all, tax revenues are down and there are so many more seeking help…. There just isn't any money left. But do come back when more people have jobs and are paying taxes, we might be able to help you then."

Once again our representatives shrink from leadership, no courage to follow a real counter-cyclical cure, a potent stimulus now, to get us out of the acute crisis, combined with iron-clad commitments for long-term discipline and austerity, to resolve the chronic issues for sustainable economic health. If they delay, they risk bringing the next stage of the crisis condemning us all potentially to years of economic contraction and the accompanying higher deficits from higher social welfare transfers and diminished tax revenues. So, my dear Europeans and Americans, you have the choice: deficit spending for a substantial and potent stimulus and public investment; or deficit spending from diminished tax revenues from an economy not performing to its potential and to pay all the laid off workers to stay home, make fruitless job applications to employers too frightened to hire and do nothing.

Either way it's going to cost something.

As a member of one of the younger generations, whose members haven't yet been admitted to positions of real power (Mark Zuckerberg doesn't count), I am grateful for many of the accomplishments that our predecessors are leaving as a legacy. Nevertheless I am not alone in my concern and disappointment that many of the debts they've left us to pay weren't invested more sensibly - in things that will leave real long term benefits. Nevertheless, I plea with the current generation in power, PLEASE make the investment, borrow the money, indebt me and my unborn children if you must, do whatever it takes to assure that you don't condemn me and the rest of us younger generations to a protracted contraction and the accompanying diminished hopes.

This is one debt that we won't mind bearing.
Do whatever it takes.
Buy the insurance.
Prevent Armageddon.
Get back to growth.

Good article on Japan, I often think that insufficient attention is paid to demographic factors (in particular dependency ratios, weighted towards old age) in assessing economic growth. That is probably the biggest structural issue facing Japan and one that will be difficult to tackle politically. I think Katz's Japan: The System that Soured has a pretty good take on the problems with the Japanese economy.*

More specific to infrastructure building though, the Japanese had newer infrastructure at the start of their crisis and since they were experiencing population stagnation other than growth did not have any reason to build into new areas. They had little choice but to build white elephant projects, with predictable consequences. We have the opportunity to actually build stuff that can help us grow. The opportunity isn't any guarantee that we will, but we are at least different than Japan in having the option to build something aside from bridges to nowhere.